CLSA lists Maruti Suzuki, Asian Paints, Bharti Airtel and Adani Power as companies vulnerable to a weakening rupee-dollar
The rupee has depreciated about 7.3 percent on a year-to-date (YTD) basis against the dollar, making it the weakest currency in Asia. Investment bank CLSA said the weakness is despite the Reserve Bank using about $25 billion in reserves over the last three months to smoothen the volatility in the rupee.
With the balance of payment remaining in deficit, the brokerage expects pressure on the Indian unit to continue. “With the rupee becoming a political issue, possibility of the Centre undertaking some form of non-resident deposit scheme/dollar bond issuance cannot be ruled out ahead of the general elections, capping the rupee’s downside. Fundamentally, the direction of the rupee may be weak in the near term”
To promote exports, CLSA feels the government should be willing to tolerate a lower rupee-dollar. “However, optics of the same will not look good ahead of the general elections next year. Prime Minister Narendra Modi had used the record rupee low versus the dollar as a campaign issue against the Congress in 2014 elections. The opposition has now already started to return the favour.”
The global investment bank said the best way to hedge the equity portfolio against a depreciating rupee-dollar risk would be by buying pharmaceutical and IT. “Metals should also benefit, but the same may be offset by forex debt and trade war issues.”
It lists Maruti Suzuki, Asian Paints, Bharti Airtel and Adani Power as vulnerable companies. “Net importers - Maruti, Asian Paints and Kansai Paints - would be negatively impacted. Apart from importers, companies with high forex debt might also see a negative impact. These include: Adani Power, Rural Electrification Corporation, Power Finance Corporation, Bharti Airtel, Tata Power and Adani Ports.”